Tag: Transparency


The Board-Centric Annual Meeting

John Wilcox is Chairman of Sodali and former Head of Corporate Governance at TIAA-CREF. This post is based on a Sodali publication by Mr. Wilcox.

For a growing number of listed companies around the world the annual shareholder meeting has come to resemble a trial by ordeal. Instead of the traditional town-meeting business forum, the AGM has morphed into a jousting field where activists, proxy advisors and various special interest groups play a dominant role. This state of affairs has evolved because for the past three decades companies have been resistant to change and defensive about governance reform, while shareholders and activists have taken the lead in successfully promoting greater board accountability and stronger governance rules. Corporate scandals, the financial crisis, escalating CEO pay, declining public trust in business leaders together with enhanced shareholder rights have transformed the annual meeting into an event where companies often focus on damage control rather than showcasing their business.

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SEC Proposal on Resource Extraction Payments

Nicolas Grabar and Sandra L. Flow are partners in the New York office of Cleary Gottlieb Steen & Hamilton LLP. This post is based on a Cleary Gottlieb memorandum. The complete publication, including footnotes and Annex, is available here.

On December 11, 2015, the Securities and Exchange Commission (the “Commission”) issued a proposed rule (the “Proposed Rule”) on disclosure of resource extraction payments, more than two years after a federal court vacated a prior version of the rule. The Proposed Rule is similar in many ways to the Commission’s original rule, adopted in August 2012 (the “2012 Rule”)—in large part because the Commission is implementing a detailed congressional directive contained in Section 1504 of the 2010 Dodd-Frank Act. However, in addition to addressing the deficiencies the court found in the original rulemaking, the Commission has made other notable changes to reflect global developments in transparency for resource extraction payments, particularly in the European Union and Canada.

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2016 Proxy Season: Engagement, Transparency, Proxy Access

Howard B. Dicker is a partner in the Public Company Advisory Group of Weil, Gotshal & Manges LLP. This post is based on a Weil publication; the complete publication, including footnotes and appendix, is available here. Related research from the Program on Corporate Governance includes Lucian Bebchuk’s The Case for Shareholder Access to the Ballot and The Myth of the Shareholder Franchise (discussed on the Forum here), and Private Ordering and the Proxy Access Debate by Lucian Bebchuk and Scott Hirst (discussed on the Forum here).

While shareholders have a wide spectrum of views on corporate objectives, the time horizon for realizing these objectives and environmental, social and governance (ESG) issues, there is an emerging consensus that—regardless of size, industry or profitability—public companies must achieve greater accountability to their shareholders, through engagement and transparency, than ever before. Corporate engagement and transparency now take two forms: direct dialogue, increasingly involving directors, and enhanced proxy statement and other public disclosure that sheds light on the company’s strategy and the performance of its board, board committees and management, demonstrates responsiveness to shareholder ESG concerns, and justifies the composition of the board in light of the company’s present needs. Throughout this post, we offer practical suggestions about “what to do now” to meet shareholder expectations about engagement and transparency and to address a host of other new developments for the 2016 proxy season.

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PCAOB Adopts Disclosure Rule

Avrohom J. Kess is partner and head of the Public Company Advisory Practice at Simpson Thacher & Bartlett LLP. This post is based on a Simpson Thacher memorandum by Mr. Kess and Yafit Cohn.

On December 15, 2015, the Public Company Accounting Oversight Board (“PCAOB”) issued a new rule and related amendments to its auditing standards that require accounting firms to disclose, in a new PCAOB form, specified information regarding the engagement partner and other accounting firms that participated in the audit. [1]

The PCAOB’s New Rule

The PCAOB’s final rule requires accounting firms to disclose, on Form AP, Auditor Reporting of Certain Audit Participants, the following information for each completed issuer audit:

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A New Measure of Disclosure Quality

Shuping Chen is Professor of Accounting at the University of Texas at Austin. This post is based on an article authored by Professor Chen; Bin Miao, Assistant Professor of Accounting at the National Singapore University; and Terry Shevlin, Professor of Accounting at UC Irvine.

In our paper, A New Measure of Disclosure Quality: The Level of Disaggregation of Accounting Data in Annual Reports, recently featured in the Journal of Accounting Research, we develop a new measure of disclosure quality (DQ), which captures the level of disaggregation of accounting line items in firms’ annual reports, with greater disaggregation indicating higher disclosure quality. This measure is based on the premise that more detailed disclosure gives investors and lenders more information for valuation (Fairfield et al., 1996; Jegadeesh and Livnat 2006) and a higher level of disaggregation enhances the credibility of firms’ financial reports (Hirst et al. 2007; D’Souza et al. 2010).

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Corporate Governance and Blockchains

David Yermack is Professor of Finance at the NYU Stern School of Business. This post is based on a recent article authored by Professor Yermack.

In the paper, Corporate Governance and Blockchains, which was recently made publicly available on SSRN, I explore the corporate governance implications of blockchain database technology. Blockchains have captured the attention of the financial world in 2015, and they offer a new way of creating, exchanging, and tracking the ownership of financial assets on a peer-to-peer basis. Major stock exchanges are exploring the use of blockchains to register equity issued by corporations. Blockchains can also hold debt securities and financial derivatives, which can be executed autonomously as “smart contracts.” These innovations have the potential to change corporate governance as much as any event since the 1933 and 1934 securities acts in the United States.

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Resource Extraction Payments

Nicolas Grabar and Sandra L. Flow are partners in the New York office of Cleary Gottlieb Steen & Hamilton LLP. This post is based on a Cleary Gottlieb memorandum by Mr. Grabar, Ms. Flow, Nina E. Bell, and Daniel Chor.

On December 11, 2015, the Securities and Exchange Commission issued a proposed rule on disclosure of resource extraction payments, over two years after a federal court vacated a prior version of the rule. The new proposal is similar in many ways to the SEC’s original rule, adopted in August 2012—in large part because the SEC is implementing a detailed congressional directive contained in Section 1504 of the 2010 Dodd-Frank Act. However, in addition to addressing the deficiencies the court found in the original rulemaking, the SEC has made other notable changes to reflect global developments in transparency for resource extraction payments, particularly in the European Union and Canada.

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FAST Act: Capital Formation Changes and Reduced Disclosure Burdens

Stacy J. Kanter is co-head of the global Corporate Finance practice at Skadden, Arps, Slate, Meagher & Flom LLP. This post is based on a Skadden alert by Ms. Kanter, David J. Goldschmidt, Michael J. Zeidel, and Brian V. Breheny.

On December 4, 2015, President Obama signed into law the Fixing America’s Surface Transportation Act (FAST Act), which, despite its name, contains several new provisions designed to facilitate capital formation and reduce disclosure burdens imposed on companies under the federal securities laws. The provisions build upon the 2012 Jumpstart Our Business Startups Act (JOBS Act), which created a new category of issuers called “emerging growth companies” (EGCs) [1] and sought to encourage EGCs to go public in the United States. [2] The FAST Act provisions, which were first introduced in a package of bills often called “JOBS Act 2.0,” are the culmination of a continuing congressional effort to increase initial public offerings (IPOs) by EGCs, reduce the burdens on smaller companies seeking to conduct registered offerings and provide trading liquidity for securities of private companies.

While some of the new provisions require rulemaking by the U.S. Securities and Exchange Commission (SEC) before they are effective, other provisions of the FAST Act amend the Securities Act itself and therefore are effective, with an immediate effect on current offerings.

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Looking Back at the SEC’s Transformation

Luis A. Aguilar is a Commissioner at the U.S. Securities and Exchange Commission. This post is based on Commissioner Aguilar’s recent public statement; the full text, including footnotes, is available here. The views expressed in the post are those of Commissioner Aguilar and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

I started my tenure as an SEC Commissioner in the late summer of 2008, only a few weeks before the collapse of Lehman Brothers and the financial turmoil that followed, and only a few months before one of the largest financial frauds in U.S. history—the Bernard Madoff Ponzi scheme—was exposed. Beyond their obviously substantial impact on the capital markets and the greater economy, these historical events demonstrated that the Commission needed to change and adapt if it was to continue to be an effective regulator. Indeed, in late 2008 and in 2009, the continuing existence of the Commission was a matter of serious speculation. Thus, whether by coincidence or circumstance—some would say a fate of timing—it is not surprising that my tenure has corresponded with one of the most transformational periods in the SEC’s august history.

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Oversight of the Financial Stability Oversight Council

Mary Jo White is Chair of the U.S. Securities and Exchange Commission. The following post is based on Chair White’s recent testimony before the United States House Committee on Financial Services, available here. The views expressed in this post are those of Chair White and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

Thank you for inviting me to testify regarding the Financial Stability Oversight Council (Council). Below I highlight my perspective on the Council and my role on it.

The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) established the Council to provide comprehensive monitoring of the stability of our nation’s financial system. Specifically, the Council is responsible for:

  • Identifying risks to the financial stability of the United States that could arise from the material financial distress or failure—or ongoing activities—of large, interconnected bank holding companies or nonbank financial companies, or that could arise outside the financial services marketplace;
  • Promoting market discipline by eliminating expectations on the part of shareholders, creditors, and counterparties of such companies that the government will shield them from losses in the event of failure; and
  • Responding to emerging threats to the stability of the United States financial system. [1]

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